Life insurance settlement calculator to estimate a net death benefit after riders, policy loans, interest, advances, deductions, and beneficiary shares.
Life Insurance Settlement Formula
A simplified death-claim settlement adds payable rider benefits to the base death benefit and subtracts policy obligations and prior advances:
Net Settlement = Base Death Benefit + Rider Benefits - Policy Loans - Loan Interest - Accelerated Benefits - Other Deductions
For a selected beneficiary share, the individual payment estimate is:
Beneficiary Payment = Net Settlement * Beneficiary Share
Variables:
- Base Death Benefit is the policy's stated death benefit before adjustments
- Rider Benefits are additional amounts assumed payable on the claim
- Policy Loans and Loan Interest are outstanding amounts secured by the policy
- Accelerated Benefits are death benefits previously advanced during the insured's life
- Other Deductions are claim-specific reductions entered by the user
- Beneficiary Share is the percentage assigned to the selected beneficiary
The reverse mode rearranges the same formula to find the base death benefit required to deliver a target total net payout.
Life Insurance Settlement Examples
These examples show how loans and prior benefits can reduce a payable death claim.
| Base benefit | Rider benefits | Loans and interest | Prior advances | Estimated net settlement |
|---|---|---|---|---|
| $250,000 | $0 | $0 | $0 | $250,000 |
| $500,000 | $25,000 | $16,200 | $0 | $508,800 |
| $500,000 | $0 | $50,000 | $100,000 | $350,000 |
| $1,000,000 | $100,000 | $75,000 | $0 | $1,025,000 |
Example Problems
Example 1: Estimate the net death claim.
A policy has a $500,000 base benefit and a $25,000 rider. A $15,000 loan and $1,200 of loan interest are outstanding.
The modeled net settlement is $500,000 + $25,000 − $15,000 − $1,200 = $508,800.
Example 2: Find the benefit needed for a target.
The desired net payout is $500,000, expected rider benefits are $25,000, and total deductions are $20,000.
The required base death benefit is $500,000 + $20,000 − $25,000 = $495,000.
Frequently Asked Questions
Do policy loans reduce a life insurance death benefit?
Outstanding loans and accrued interest generally reduce the amount payable unless they are repaid before death. A large loan can also contribute to policy lapse if values are insufficient.
Are life insurance death benefits taxable?
Death benefits paid to a beneficiary are often received income-tax-free, but exceptions can apply. Interest paid by the insurer, transfers for value, estate taxes, and business arrangements require separate review.
How are multiple beneficiaries paid?
The insurer applies valid beneficiary designations and any per-stirpes or contingent provisions. The share field estimates one beneficiary's percentage after the total modeled settlement is calculated.
